Deal killers: Franchise resales

Presenting your business as the perfect franchise is not the same as presenting it as the perfect opportunity. 

If your business is already perfect, where can a new owner take it? 

Our team have been involved in many greenfield and resale deals and have gained a unique insight into what people do well, and less well. 

1. Unrealistic expectations: time and money 

Time – The most direct comparison people draw when selling their business is to a house sale. This is entirely understandable as there is a buyer and seller, legals, and potentially funding too. But it takes an average of 18 months to resell a franchise. Completing a resale in three to six months is, in our experience, very rare. Pushing hard to make a deal happen in this period can prove seriously detrimental, with prospects feeling pressured and ultimately being scared off. 

Money – Over-egging the asking price can have dire consequences. Most obviously, you limit the pool of prospective buyers, where a slightly lower asking price could open the door for very credible prospective purchasers. If the price appears too high when a prospect reviews the available information at an early stage, it can put a prospect off entirely. Additionally, funders look at the finances of a business for sale very closely. If the business’s year-end accounts don’t support the asking price, debt serviceability comes into question, most likely meaning funding applications are rejected. 

2. Deal structure: an inflexible approach 

Generally speaking, there is no right or wrong way to structure a deal. However, closing your mind to a range of structures could put a deal in jeopardy. One way to keep both buyer and seller happy is including a deferred consideration. This is where a deal is struck with, say, 70% paid upfront and the rest paid dependant on achieving agreed KPIs. 

It’s worth discussing previous structures in your network with the franchisor, who may have highly valuable input at this stage. Flexibility and adaptability is key. 

3. Marketing in the wrong way in the wrong places 

How and where you position your resale has a massive impact on finding the right buyer for your business. 

If the opportunity isn’t presented in an attractive manner on the right channels for an ideal prospective purchaser, you could be waiting a very, very long time. 

You need to stand out from the crowd. The business-sales market place is flooded with opportunities, so make sure you’re giving the prospect every reason to want to learn more about your business. 

Ensure you’re showing off the strengths of the business, but don’t forget to highlight the opportunities to level up, enabling the purchaser to secure a strong return on investment. 

4. Not taking the franchisor and their requirements into account 

The franchisor is a very important party in the deal. They have, rightly, the ability to green-light or veto a deal. So it’s vitally important to involve the franchisor in the exit planning and sale process, making sure you thoroughly understand their requirements and criteria for a future franchisee. They may even have some candidates who could fit the bill. 

It saves a great deal of wasted time. 

5. Not taking professional advice 

Unless you’re a seasoned professional who’s bought and sold businesses before, it’s highly advisable to speak with established professional business brokers, with solid franchise experience. A general business broker may not understand the nuanced franchise relationship, or understand how and where to market your business for maximum effect. 

This conversation could save you a great deal of time and money – plus you will avoid making any obvious and needless mistakes. 

If you’re not quite sure how to present your resale as the perfect opportunity for the right prospect, talk to a professional, experienced broker, like Franchise Business Brokers. 

Expert support can take the pain away from the initial marketing material creation, advertising stresses, candidate qualification and screening, franchisor/third party relations and so much more. 

To learn more or discuss further, contact franchise business brokers in confidence here.